In 2012 Seabridge Gold(NYSE: SA, TSX: SEA)launched an exploration program at its KSM gold-copper project in Northern British Columbia with the goal of finding deeper higher-grade core zones at its massive porphyry deposit.

The exploration program paid off with the discovery of strong copper and gold hits that same year under the Kerr component of the KSM project. Two years later the company has already established the new discovery, called Deep Kerr, as a half-a-billion-tonne resource.

The discovery has the potential to transform the economics of their flagship property, and possibly attract the elusive joint venture partner Seabridge needs to develop the project.

Discovery Made

Seabridge first cut into Deep Kerr in the fall of 2012 with hole K-12-20. After 560 meters of boring into the hillside the hole hit 452 meters grading 0.45% copper and 0.27 g/t gold.

To follow up on its encouraging discovery the company threw most of its exploration dollars at the discovery in 2013, spending $22.3 million to get five rigs on site to pull 24,000 meters of core from the side of the mountain. The investment paid off with numerous encouraging results, including hole K13-34 that returned 640 meters grading 0.85% copper and 0.42 g/t gold.

In March 2014 the company released the results of its big 2013 push: a 515-million-tonne resource grading 0.53% copper, 0.36 g/t gold and 1.8 g/t silver. That makes for 6 billion lbs. of copper, 5.9 million oz. gold, and 30.3 million oz. silver in the ground, plus some molybdenum for good measure.

The resource puts Deep Kerr among the world's major copper projects, not even counting the rest of the 38 million oz. gold, 10 billion lbs. copper and 191 million ounces of silver reserves at the KSM project. The Deep Kerr resource also has 2.5 times the average copper grade at KSM, which compares to some of the world’s biggest copper projects including Bingham Canyon, Grasberg, Oyu Tolgoi, and Batu Hiju.

Seabridge's chairman and CEO Rudi Fronk says the shift to a higher ratio of the red metal is a big deal.

"We set out last year to change the economic profile of KSM and we have succeeded in doing so. Before Deep Kerr, KSM was a gold project with a robust copper credit...Now, KSM also has a much stronger copper profile which, we believe, opens up the potential for a joint venture with a large base metal producer."

The Deep Kerr resource is based on block cave mining, since it sits under about 500 meters of the open-pitable Kerr deposit. With the two deposits semi-contiguous the resource model integrated a 50-meter buffer to separate the two deposits.The Deep Kerr deposit consists of a broad zone of altered rock that is about 600 meters wide and interpreted to be a relict intrusion.

The technical report on Deep Kerr says the deposit displays excellent continuity of grade both vertically and laterally within the deposit. The report also states that the grades of the resource could go up thanks to the discovery of a higher-grade core zone of copper, if more drilling proves up the current geologic and mineralogical models.

Early metallurgical work shows that copper recoveries should be around 88 to 90 percent and gold recoveries between 60 and 70 percent.

While it’s still early days, Seabridge is going to be evaluating whether it’s possible to mine both Kerr and Deep Kerr in a single underground operation. In the meantime the company has contracted Golder Associates and AMEC to undertake bulk underground mining studies for Deep Kerr to better understand the deposit.

The deposit is still wide open the north and down dip, so the company is planning another big round of drilling for 2014. This year’s program will include about 19,000 meters of drilling in 8 to 12 deep holes to test the northern extension, as well as some drilling to test the zone’s depth and possible continuity to the east. The company will be using directional drilling technology to re-enter holes and reach the target zone faster. The rigs should get going in early June based on the snowmelt.

Depending on the success of this year’s program the company will then start working towards establishing 75-meter and 100-meter drill spacing to bring the resource up to measured and indicated, at an estimated cost of between US$10 and US$20 million.

Finding the next Deep Kerr

The company is currently focused on Deep Kerr, but it thinks it can find more such deep and higher grade deposits on the property. Seabridge says that Deep Kerr showed that movement along the various faults hadn't been enough to move the core zones out of reach, and they now know how to find them.

Deep Kerr was identified using resistivity profiles along the plunge projection of the original Kerr deposit, so the company plans to use the same method to identify other potential core zones.

For 2014 Fronk says Deep Kerr is the first priority, but they'll also be on the lookout for more zones.

"We are confident that we can significantly increase the size of the Deep Kerr resourcewhile also potentially improving its average grade. We also think we can find more core zones and that is our second priority for this year’s program.”

One of the areas with the greatest potential for another discovery is the Iron Cap zone, sitting about 2 km north of the Mitchell component of the KSM project.

The Company plans high-resolution physical property measurements in the area around the dip projections of the Iron Cap and Mitchell deposits, as well as the direction of the regional plunge for the McQuillan target, sitting adjacent to the east of the Sulphurets deposit. The objective here is a more gold rich zone as well as higher-grade copper.

Seabridge notes that finding a new zone at the Iron Cap deposit would work especially well because that deposit is the closest to the proposed infrastructure and Iron Cap is already being designed as an underground block caving operation.

“We think that, at Iron Cap, we may right now be where we were last year at this time with Deep Kerr,” says Fronk. “The last holes drilled at Iron Cap in 2013 generated well-mineralised intercepts up to 850 m long as well as some exceptional grades directly below existing resources including 51 m containing 1.38 g/t Au and more than half a percent of copper. We appear to be closing in on a significant discovery that may be more gold rich than Deep Kerr.”

Besides discoveries the big news at KSM this year could be securing environmental permitting. Seabridge is several years into its environmental permitting, having responded to final questions from the assessment office earlier this year.

The company has expressed confidence in getting approval, but it is a complicated evaluation. The mine area is surrounded by high mountains and glaciers and could impact the headwaters of two watersheds. Mineralized rock at the project isacid generating which requires a sophisticated water management system to prevent damage to the environment.

The time is now ticking on the 180-day evaluation window, with Seabridge expecting provincial approval in July, and then federal approval within sixty days after that.

Over in the Northwest Territories Seabridge is still working away at its Courageous Lake project, the second largest undeveloped gold project in Canada after KSM.

Like at KSM the Company has been looking to find higher-grade starter deposits to reduce the upfront expenses and improve the overall financial picture of the project.

In March the Company announced an initial resource for Walsh Lake, a satellite deposits sitting about 10 km south of the 6.5-million-oz.-gold FAT deposit at the Courageous Lake project. Like Deep Kerr, Seabridge only discovered the Walsh Lake deposit in 2012 but has already drilled over 17,000 meters and established a resource for the new target.

The Walsh Lake resource came in at 4.62 million inferred tonnes grading 3.24 g/t for 482,000 oz. gold. The resource isn’t a total game-changer for Courageous Lake, but the grades are higher than the 2.2 g/t at the main deposit, and the resource is near surface and also close to the proposed infrastructure for the main mine. The resource also shows good recoveries, with initial results indicating 93 to 95 percent gold recovery with a 48-hour cyanide leach time, and between 88 and 95 percent recoveries with flotation tests.

Both Courageous Lake and Walsh Lake sit in a 50-km long, wholly-owned greenstone belt that Seabridge says has lots of potential for more discoveries.

CORE PRIORITIES

With so much exploration going on at its two main projects Seabridge has been busy shedding non-core assets to keep things focused and to bring in additional cash.

The company has optioned out its Red Mountain project in British Columbia to Revolution Resources. The deal has Revolution issuing Seabridge 30 million shares, paying $2 million, and spending $7.5 million on exploration over time. Seabridge retains a portion of the gold stream after production begins.

In 2011 the company divested itself of its Quartz Mountain project, with Alamos Gold now earning into it. Alamos paid $2 million in October, and owes Seabridge another $3 million in cash or shares after finishing a feasibility study, and $15 million in cash or a 2% NSR after the mine is permitted and bonded.

At the end of March Seabridge had $24.1 million in working capital. In December 2013 the company raised $16.8 million in flow-through financing, issuing 1.5 million shares at $11.17 each, a 46.6% premium over the market price on the date. The funds will all go towards exploration and moving the environmental assessment forward in 2014.

With the flow-through financing the company shouldn’t have to raise any more money in 2014, so the total number of shares outstanding will remain at just under 50 million.

And with fewer than 50 million shares outstanding, the company still has close to an ounce of gold reserves per share. Overall the company has an enterprise value of $8 per oz. of gold reserves.

News of the Deep Kerr resource helped push Seabridge’s share price to a high of $10.77 in mid-March, but by April the stock was back to hovering around $8.

Looking forward the company’s share price could get a boost from more big discoveries at its KSM project, especially if they’re high grade and have the potential to change the economics of the project. Approval of the environmental assessment should also give a boost to the company’s stock.

Ultimately these are gains designed to make the project more appealing for deep-pocketed majors that can afford to take on such a massive project. Seabridge has no intention of developing the KSM project alone, and has been actively looking for a joint venture partner. If the company continues to successfully develop Deep Kerr or find higher-grade deposits on its property that change the economics even more then it might finally find that partner. And that would really get Seabridge’s stock price moving.

2014 is shaping up to be a very exciting year for Seabridge investors with Deep Kerr’s big discovery, the drill season kicking off at KSM along with securing environmental permitting.Seabridge continues to hold its commitment over the years to put shareholders first, which has been demonstrated by their history of advancing these projects, adding value combined with their anti-dilution policy. This remains an investor friendly gold stock which at these trading levels continues to be an excellent accumulation opportunity.

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Peter Spina's experience with the precious metal markets started back in the mid-1990s, which led to the creation of GoldSeek.com back in 1995. Today GoldSeek.com ranks in the top three most popular global gold websites and its sister site, SilverSeek.com ranks as the most visited silver website in the world. Back at the start of the new secular precious metals bull market, Peter established the technically-focused subscription newsletter, Gold Seeker Report, which at the start of 2005 was merged into the more comprehensive Gold Forecaster (goldforecaster.com) service. In addition to the newsletter and websites, Peter frequently appears in the media including MarketWatch, Reuters, and theStreet.com

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